Standing Committee A

[Mrs. Joan Humblein the Chair]

Clause 7

The Commission’s objectives, general functions and duties

Andrew Turner: I beg to move amendment No. 8, page 6, line 8, at end insert
‘in particular by reducing the administrative burden on charities.’.

Joan Humble: With this it will be convenient to discuss the following amendments: No. 66, page 6, line 35, at end insert—
‘(7) Giving information or advice or making proposals to any member or members of the public interested in registering a charity under subsection (3), including advice not to register.’.
No. 75, in page 6, line 35, at end insert—
‘(2A) The Charity Commission’s first general function shall include a systematic review of the public benefit test for existing charities.’.

Andrew Turner: Good morning, Mrs. Humble. It is a great pleasure to meet once again under your chairmanship. Outside, the sky is grey, and the sun has ceased to shine on our proceedings, but many of us will be pleased that it is a little less humid than on Tuesday. I understand that the M4 is shrouded in thunder—if one can be shrouded in thunder—from Reading to Somerset, and we may have some of that weather later today. However, none of it will be associated with the proceedings of this Committee. I assure you of that.
One of the Charity Commission’s objectives is defined in the Bill as being
“to promote compliance by charity trustees with their legal obligations in exercising control and management of the administration of their charities.”
However, there is some evidence that, in trying to meet that objective, the commission can—and, indeed, did, before it had that objective—act with a heavy hand rather than a light touch. That is driving some people away from volunteering as trustees or supporters of charities. Accordingly, I propose amendment No. 8, which would insert the following at the end of that compliance objective:
‘in particular by reducing the administrative burden on charities.’
On Tuesday, I mentioned my concern about the burden of registering as a charity and demonstrating public benefit. Let me quote that elusive piece of evidence that I could not find on Tuesday, but which is just as relevant to this debate, I assure you, Mrs. Humble. It was sent to my right hon. Friend the Leader of the Opposition via a Conservative party website. It began, “Dear David Cameron”. In fact, I recall that, on Tuesday, I expressed some scepticism about whether the writer was a lifelong Labour supporter, as he claimed. The fact that he addresses my right hon. Friend as “David Cameron” rather than Mr Cameron or David—

Edward Miliband: Or Dave?

Andrew Turner: Or, indeed, Dave. The fact that the letter writer did not do that indicates that he might not be an active Conservative party member. He goes on to say:
“I am E-mailing you to ask who is in the lead for the opposition on the Charities Bill, currently at second reading.”
That is why I have been passed this e-mail. It goes on:
“I should say that I am myself no natural conservative”—
with a small “c”—
“I am a Christian socialist and a life-long Labour”—
capital “L”—
“voter. However I have recently been press-ganged into being treasurer of my local church.”
That seems very much akin to the process involved in becoming treasurer of a Conservative association branch. Actually, I understand that that problem is common to all political parties.
The e-mail goes on:
“Now that I see the regulatory burden which is to be imposed by the Charities Bill, and the Statement of Recommended Accounting Practice (SORP 2005) imposed on charities by the Charity Commissioners, I can quite see why no-one else was prepared to be church treasurer. The regulatory burden which will be cast (by the well remunerated) onto the shoulders of the unpaid in the voluntary sector is in my opinion costly, wrong and oppressive.
I would like to interest someone from ‘your side’ in taking this forward with the Gov’t. I would hope this could be done by consensus, by raising the compliance thresholds to £500,000 a year”.
The Parliamentary Secretary will be pleased to know that I do not go along with that proposal exactly.
The e-mail continues:
“In this way medium and large charities would be well regulated and smallish charities would not be dragged into the regulatory regime by inflation (the lower £100,000 threshold has been unchanged since 1993. I quite understand any desire of the Charity Commissioners to extend the scope of that, but the desire to regulate should be balanced by realism. Else the Charity Commissioners will suffocate the volunteers on which small and middling charities rely.)”
That is a good example of the feeling among many charity volunteers, but it is a new example and, because it was sent only on 27 June, it was not put before the Joint Committee. It was not debated in another place during either of the Bill’s outings, but it clearly represents the feelings of volunteers.
There is other evidence as well. Mr. Brough says that he is bringing the issue to my attention for the
“sake of church treasurers throughout the United Kingdom who may not, yet, realise what regulatory burden is about to hit them. We are all unpaid, hard working and hard-pressed. We do not need this additional burden.”
Mrs. Humble, in case you have not heard of SORP, I shall read out what it says about itself. It says that it
“provides guidance on the application of accounting standards (compliance with which is considered necessary, in all save exceptional circumstances, to meet the legal requirement to give a true and fair view) in a manner which takes account of the particular circumstances of charities. In all but exceptional circumstances, charities preparing accruals accounts should follow this SORP’s accounting recommendations to assist in ensuring that their accounts give a true and fair view.”
Of course, none of us is opposed to the reasonable and fair regulation of charities or to proper accounting for the donations—one might almost say the pennies of the poor—that go into charities. Indeed, in my view, it is more important to take care of the pennies of the poor than of the donations of the wealthy.
However, the quality of accounts required by SORP appears to place an unnecessary burden on small charities in particular. That is why I tabled the amendment. The document from SORP grew from 68 pages and 240 paragraphs in 1995 to 89 pages in 2000; the 2005 version has 109 pages and 451 paragraphs. Its size has increased by more than 50 per cent.
Another example provides the same picture. It comes in a letter from Denise King, chief executive of Girlguiding UK that I only received on 15 June. I quoted it earlier, but shall quote it more fully on this occasion. It says:
“Recent emphasis in Charity Commission publications on the responsibilities of charity trustees and the prospective penalties for non-compliance are unhelpful to a largely activity based organisation such as Girlguiding UK, where...charity trusteeship is a very secondary consideration to the role of the volunteer adult leader providing activities for children...Unfortunately, there is some evidence that the insistence on highlighting charity trusteeship is discouraging adult volunteers, who...are averse to being threatened with the consequences of failure in the capacity of charity trustees.”
That is not the approach, certainly not the perception, that we wish to foster in the minds of those who want to devote some of their time to volunteering, whether through assistance to the young through the girl guides, to the advancement of religion through the Church or to the elderly through care homes and so on.
We understand why it has been necessary through other legislation—through Criminal Records Bureau checks, the Commission for Social Care Inspection and so on—to improve standards in care homes, children’s homes, youth volunteering organisations and so on. We understand all that, but what I am talking about is driving people from supporting charities.
It is essential that the Bill should bring forward small measures that redress the balance, and my amendment would introduce one of them. It might be described by the hon. Member for High Peak (Tom Levitt) as meeting the Cheltenham principle. Like most of my amendments, this amendment does far more than meet that. The Cheltenham principle, as I understand it, is based on what is nice, but the amendment is necessary.

Helen Goodman: May I say what a pleasure it is to serve under your chairmanship, Mrs. Humble?
Before I entered the House, I worked in the voluntary sector for eight years. I worked in two very different organisations. First, I worked in the Children’s Society, which is a large, well functioning, well known charity with a finance department, a fundraising department and human resources experts. I then went on to run the National Association of Toy and Leisure Libraries, which is a membership organisation with a turnover of less than £1 million a year. The association supports 1,000 projects across the country, ranging from a large co-partnership between the voluntary sector and the local authority in Manchester, which provides resources across the whole city, to really tiny projects, such as one that I visited in the local prison in Perth, where a woman provided play sessions twice a week for the children of people visiting members of their family.
I have to say that running the association was probably the most stressful work experience that I have ever had; it was certainly far more stressful than being a Member of Parliament or a Treasury civil servant. In large part, that was because we lacked the resources to deal with the regulatory burden, and it is important that the Committee take account of the fact that small organisations lack that administrative infrastructure.
The hon. Member for Isle of Wight (Mr. Turner) mentioned some aspects of the regulatory burden, but there are others, such as health and safety legislation, compliance with the fire officer’s requirements and the full panoply of employment law. Of course, I am not saying that it does not matter whether a building in which people work is safe from fire or that small organisations should be excluded from the provisions of employment legislation. What I am saying, however, is that we have an opportunity in the Bill to minimise, rather than maximise, those regulatory burdens.
Let me give an example of something that happened to my organisation. We were a few days late sending in our annual return, because one of the trustees’ addresses had changed. That triggered an automatic letter in the bowels of the Charity Commission, but that letter did not come to me, telling me that I was late; it went to the former trustees, telling them that I was late and that our charitable status was likely to be taken away if we did not comply straight away. It was as if the Revenue had written to the employer of someone who had failed to get their income tax return in on time to tell the employer that they should be sorting the problem out. I am sure that the Minister’s meetings with the commissioners are all very pleasant, but the bureaucracy at the interface is sometimes rather heavy-handed. We must therefore ensure that the administration of any new obligations that we introduce is such that we minimise the contact between the voluntary sector and the Charity Commission and ensure that it is absolutely streamlined.
I will not spare the Minister’s blushes. One morning last weekend, the Prime Minister was speaking about the Government’s work, and the only colleague he mentioned was the Parliamentary Secretary, Cabinet Office, my hon. Friend the Member for Doncaster, North (Edward Miliband). The Prime Minister said how marvellous it was that we could grow the voluntary sector under the benign view of the Minister and strengthen the partnerships between the voluntary and the public services.
That aspiration will come to nothing if we do not ensure that the small, local groups and charities are not overburdened with administration and that we give them a stable funding environment. I am not going to support the Opposition’s amendment because we do not want to introduce a new duty on the Charity Commission of that kind. As we go through the Bill, we want to check that we are minimising the new obligations and that we are putting them in place in a way that will not create a new Byzantium.

Peter Bottomley: The hon. Member for Bishop Auckland (Helen Goodman) may be too young to have been working for the Children’s Society when I was chairman of the executive council in 1983-84. She and my hon. Friend the Member for Isle of Wight are right to say that the obligations on people that volunteer to help others can be overtaken by trying to understand their duties. In his response, the Minister may want to include a calculation of the number of hours that it would take all the trustees of all the charities to read all the paragraphs that there are in the SORP regulations.
I have been a trustee of various charities—some for a long time; others for shorter periods—and I go through regular training and retraining. Although I am probably one of the more experienced trustees, there is always more to learn and there are matters that I do not fully understand notwithstanding the benefit provided by the charity commissioners’ annual report and its useful reproduction of some of the cases that have been heard in the High Court, where issues between trustees or between the Charity Commission and trustees can be heard.
My hon. Friend’s amendment is sensible. I do not agree with what the hon. Lady said—that it adds to the requirements on the Charity Commission. It does not. It states that part of its aim should be reducing unnecessary burdens.
I ask that another point go through the Minister to the Charity Commission and to the Housing Corporation. I am a trustee of the almshouses trust, which provides accommodation to people with particular needs. Almost two years ago, we were faced with a situation in which the Housing Corporation requirement’s for the trust’s accounts was incompatible with the way in which the Charity Commission required the accounts to be produced. It took some time to get the Housing Corporation and the Charity Commission to allow us to produce a set of consistent accounts, rather than producing separate sets. In that case, there was probably some misinterpretation by us, the Charity Commission and the Housing Corporation.
When those in authority—whether they are in the Housing Corporation, the Charity Commission or the Government—spot the fact that a problem needs sorting out, they should bring it to the attention of their governors. Those problems do arise, but when they are spotted, it is a question of what action people take. When they spot issues that cause unnecessary anguish, effort and expense to people that are running causes for the public benefit—which is what charities are—it ought to be built into the requirements of the Charity Commission, let alone those of the Housing Corporation or Ministers, that they do something about it.
I am not sure whether we will hear the reasons for the other amendments that are grouped with that one. However, whether the amendment is carried or accepted by Government now or at a later stage, I hope that its purpose is accepted.
I set this challenge to the Minister. When the Bill is through, will he ask his advisers to sit down with the Charity Commission to see whether they can reduce the more than 400 paragraphs in the SORP requirements? That is only one of the matters that charity trustees need to look at. We need to see whether we can produce a simplified version that brings down what trustees need to understand to 20 paragraphs—unless charities are in certain categories of activity or size. What key things must people do and what makes it possible to be a good enough trustee? For anything else, they could go to appendices and the like. That change would be well worth accepting.

Tom Levitt: The amendment falls foul of the Cheltenham principle of being harmless if not entirely necessary. Does the hon. Gentleman not accept that the aim of the amendment to proposed new section 1B is covered by proposed new section 1C(2)2, which says that a general function of the commission will be to encourage and facilitate
“the better administration of charities”?
It covers the amendment’s objective completely.

Peter Bottomley: That might satisfy the hon. Gentleman, but it does not satisfy me. The word “reduce” is rather different from the words “encourage and facilitate”. We want to cut the unnecessary burden on those who take the responsibility of involvement in charitable activities. We heard the example of the girl guides, and there are many others who help young people, the elderly, the disabled or people with mobility handicaps without being required to encourage and facilitate better administration. It is quite clear to the hon. Gentleman and to me that reducing something unnecessary is part of better administration, but that is worth spelling out in plain English. That is what I have been trying to say to the Minister.
Let us accept the challenge of achieving what we are trying to achieve without making charity trustees dot every i and cross every t. So many trees would be sacrificed and so many hours diverted, when we all know through common sense what we are trying to achieve. Let us help the trustees to understand that as well.

Mark Todd: I agree with the preceding remarks, but the principle applied in the work of the Charity Commission must be based on risk. I think that that is actually what the hon. Member for Worthing, West (Peter Bottomley) was saying. There are warning signs that the Charity Commission should be interested in the details of a charity’s affairs and should respond to the triggers that it has been sent.
On Second Reading, I referred to a case in my constituency—I shall refer to it again here—involving a small charity that consistently failed to produce any accounts because it lay below the limit for having to do so. It also failed to hold membership meetings of any kind and then ran itself into considerable difficulties involving a police investigation and inert responses from the Charity Commission. I thought that the signs had been there for quite some time that that charity needed greater scrutiny and care.
It is not inconsistent to support some of the empathetic remarks that have been made. Charity trustees have contacted me in rather the same tenor as those who have contacted the hon. Member for Isle of Wight, complaining of the burdens that they face, their difficulties accommodating such tasks in their diaries and the risks that they feel they are taking because of the apparent dangers of non-compliance. I must, however, balance that point with my experience that charities left to trundle away quietly in the gloom without any spotlight on what they are doing can lead eventually to serious harm. We need a sense of proportion and a proper understanding—I have not found the Charity Commission to be good at this—of the risk signals that are often present.
In my experience, what helps a huge amount is a local infrastructure that supports charities in some of the tiresome tasks that we all recognise are required. On Second Reading, I mentioned that the local authority that I used to lead offered an accounting service to charities in the area to support them with such tasks. It is perfectly obvious that small charities find it difficult to find people who are happy doing accounts, because such people are not that common in our world. Such people often take on multiple functions, and there is a limit to how many times they are prepared to do those tasks.
One of the most effective services provided by my local authority was one where it said, “We’ll pay for some accounting functions to support you, or even provide the professional services of some of our local authority accountants to assist to ensure that your compliance requirements are met, and, to be fair, to ensure that the local authority can continue to assist you in your activities.” Many of them had direct relationships with my council to provide various local services.
The provision of certain professional services to support small charities, such as accounting, design services if they require building support—the local authority in my constituency offers off-the-peg designs for small buildings and suchlike, which is very helpful to community-based charities—can genuinely lighten the burden of a stretched voluntary community. Many of us do not represent areas with large, middle-class, professional communities who are happy to lend their services to community groups for nothing. We represent much more mixed areas in which such people are rather fewer and further between. Small charities desperately need support and help with such tasks.
Will the Minister think carefully about the risks that I have mentioned? Consistent failure to produce any sort of accounts or information about activities from even a very small charity that lies below the limit for formal compliance ought to be an indicator of the need for some basic scrutiny of what they are up to.

Martin Horwood: Thank you, Mrs. Humble, I am pleased to serve under your chairmanship again. On what is I suppose a point of order, I am not sure of the correct procedure in Standing Committee. Should we declare interests that we declared on Second Reading? If so, I should do so now.

Joan Humble: The onus is on the Member to decide whether he should declare an interest. If you wish to declare an interest, make the declaration.

Martin Horwood: Thank you, Mrs Humble. In that case, I shall make the declaration yet again, and refer hon. Members to my declaration on Second Reading, when I mentioned my role as a trustee of a blindness research charity, Fight for Sight, and my involvement in various local charities. As a trustee, I am very aware of how correct are many of the comments that have just been made about the onerous burden placed on the trustees and officers of charities to meet the regulatory requirements that now exist. I remember speaking for the Liberal Democrats in a Westminster Hall debate on volunteering, in which a constant theme was that the burden of regulation placed on charities was one of the greatest possible threats to volunteering in this country and to the massive valuable contribution that volunteers make to many and various non-governmental organisations.
SORP has been drawn up for laudable reasons: to try to provide a locked-in process of best practice, to guard against fraud and to provide a standard format that will allow the easy and appropriate comparison of charity accounts, but it is difficult to ensure that such things do not get out of control and damage the interests of charities. That does not affect only small charities.
When I was involved in the Alzheimer’s Society at national level, it was all very well for the finance department to comply with SORP at national level, but we also had hundreds of local branches and, because they were part of the same charity, their accounts had to be consolidated with the national charity’s. That meant that hundreds of local treasurers all around the country had to comply with the SORP rules, and they had to try to fit into that overall structure even though in some cases their income was extremely small. It was onerous and it was a struggle. As hon. Members have said, it often leads to difficulty in persuading people at local level to take on the role of trustee or voluntary officer or—in particular and as we all know—the role of treasurer. Treasurers’ roles are often almost impossible for local charities to fill. If regulations are so onerous and complicated to implement that volunteers are deterred from participating in charitable activity, the process becomes self-defeating.
We must nevertheless guard against the slightly naive belief, which seems to have crept into some of the debate, that smaller charities are somehow less inclined to fraud or less open to it, and are therefore less in need of regulation and guidance. There was a good example in this morning’s edition of The Independent, which demonstrated that even charities based in the most trusted of institutions can sometimes be open to fraud. If hon. Members looked at The Independent this morning they would have seen, next to what, I have to say, was a rather good article entitled “Lib Dems offer cuts in business taxes”, another article entitled “Charity manager stole £130,000”. It tells the story of Paul Olden from Southampton, who stole more than £130,000 from a relatively small charity that was based in this Palace. The charity was the Speaker’s Art Fund. So fraud does occur, and rules like SORP in some form or other are useful in increasing the likelihood, as the hon. Member for South Derbyshire (Mr. Todd) said, that such fraud will come to light and that bad practices in smaller charities will be exposed.
The hon. Member for South Derbyshire said that it was more dangerous to allow charities in some cases to—I think he said—“trundle away quietly in the gloom.” However, nothing he said particularly contradicted the principle that is enshrined in the amendment. The amendment does not seek the removal of such obligations—it merely says that the Charity Commission should be obliged to work for their simplification. The threat to the voluntary efforts of thousands of people is so serious that the amendment is worth making—the Charity Commission should be obliged to simplify regulation and administrative burdens whenever possible, so I support amendment No. 8.
We are also considering amendments Nos. 66 and 75. Amendment No. 66 would amend clause 7, which is concerned with the general functions of the commission, to include the function of advising people, on certain occasions, not to register as a charity. That might seem odd, but the intention is a very good one. The hon. Member for Bishop Auckland was right to say that there is a huge range of charitable activity in this country, some of it consisting of very small set-ups, often related to a single person’s life or memory. They are very worthy in intent but they often land themselves quickly in quite serious administrative difficulties, partly because of the regulatory burden on charities. Sometimes the people who establish those charities would have been best advised not to set up their own independent charity at all.
When the Alzheimer’s Society was concentrating on the issue of variant Creutzfeldt-Jakob disease we were approached by someone who had already taken the step of trying to set up their own charity in memory of a relative, to raise money for work on variant CJD and to look into research and support for people with the disease. However, it transpired that at any one time there are not actually that many people with variant CJD in the country—one could count them not quite on the fingers of two hands, but almost. So there was a very small pool of people to help, and the Alzheimer’s Society had a generously Government-funded programme that was aimed at supporting such people, raising funds for them and initiating research into variant CJD.
The people who set up that smaller charity would have been much better advised to launch a fundraising campaign, perhaps with restricted funds in memory of that relative, and given the funds to the Alzheimer’s Society. They would have escaped much of the hassle and burden that later came their way during the process of becoming a registered charity and jumping through all the hoops that we have discussed. The charity commissioners do not consider it their role to make a judgment or to advise charities or prospective charities. There is a very strong argument for giving them that general function and allowing them at least to issue guidance to people who are considering registering as a charity.

Mark Todd: I am following what the hon. Gentleman says and I agree with a lot of it. Does he agree that different models of government may be more appropriate? People may decide that they want to make themselves a charity, but some sort of mutual organisation or another mechanism for supporting voluntary endeavour may be better. Perhaps such advice should be given. I do not know whether the Charity Commission does so.

Martin Horwood: The hon. Gentleman is exactly right. That advice could form part of the general function whereby people were advised about their options, which might not necessarily involve charitable status.
We have talked already and will talk more today about the workload that the Bill gives the Charity Commission and how it extends the commission’s responsibilities considerably, without any expectation of its resources being extended. However, the provision before us provides another opportunity to lessen the commission’s workload, this time by giving it fewer charities to regulate. If the 80/20 principle follows, and much of the work of administering the accounts and returns of charities relates to small charities, we might reduce the commission’s administrative workload by offering the people who would register at that end of the spectrum the alternative of not registering but pursuing another direction.

Peter Bottomley: The hon. Gentleman’s point about the restricted fund is useful. We have the example of Warren Buffett, who has decided to put most of his money into the Gates Foundation. If one can do it with billions of dollars, one ought to be able to do it with hundreds of thousands of pounds, too. It might be worthwhile the Minister discussing whether the Charity Commission should have as one of its aims the appropriate amalgamation of charities—either total amalgamation or becoming a restricted fund within others. The hon. Gentleman’s point about reducing the hundreds of thousands of charities to a smaller number, where appropriate, is a good one.

Martin Horwood: I agree. Warren Buffett’s donation, and his decision not to incur any administrative costs himself, is typical of the man. In that case, it was a wise step and a good example to much smaller donors and philanthropists. However, I am not sure about the hon. Gentleman’s point about mergers, because one advantage of the legislation—if we finally get it on to the statute book—is that it makes the administration of mergers easier for trustees to carry out. That is one reason why we support the Bill. Although not mentioned under the general functions as far as I can tell, I take it from the legislation that one of the commission’s functions is to encourage appropriate mergers and, thereby, the reduction of administrative costs. Perhaps the Minister will confirm that.

Tom Levitt: As I recall, the hon. Gentleman asked me about mergers during an intervention on Second Reading. I repeat the point that I made then. Although I am all in favour of the legislation making appropriate mergers easier, I am worried about encouraging mergers, because the voluntary and charitable sectors resent it when the direction of travel is imposed from outside. I hope that the legislation will remain neutral: facilitating mergers, not encouraging or hinting that they ought to be the order of the day.

Martin Horwood: I sympathise up to a point, but the administrative tier of any charity is always, in a sense, a distraction from the charitable purpose and always places some burden on the charity if it takes any resources away from the sum that can be spent on the primary charitable purpose. There is a prima facie case in favour of merger that should not be discouraged, but should be encouraged if possible. I speak as a trustee of an organisation that has gone through the merger process. I wish that the Bill had been law before we had done that, because it was difficult and complicated.

Andrew Turner: I am not sure whether the hon. Gentleman is talking about facilitating or promoting mergers. His most recent remarks suggest that the process is difficult, whereas his earlier remarks implied some mild encouragement.

Martin Horwood: Although my amendment does not relate to mergers—we seem to have strayed into that subject—my point is that the merger process is difficult at the moment. The Bill will make it easier and is therefore a good thing. I agree with the hon. Member for Worthing, West that, generally, where mergers are appropriate it would not be unreasonable for the Charity Commission to encourage them as a way of reducing overall administrative costs and burdens.
I should like to move to amendment No. 75, which is a probing amendment that would add to the first general function a systematic review of the public benefit test for existing charities. If the Government’s arguments on Tuesday are to be believed, the new legislation will make a difference, even in its unamended form. The application of the public benefit test to charities that were not previously required to pass it will potentially change their charitable status.
The Office of the Scottish Charity Regulator is embarking on a process of systematic review. I should be interested to know whether the Parliamentary Secretary envisages that process happening in England and Wales once the Bill has been passed or whether, when that has occurred and the lawyers conclude that not much has changed, and existing charities are assumed, until challenged, to have charitable status, that process will ever be reviewed systematically by the Charity Commission. That touches on the problem underlying many aspects of the Bill, which is that the Charity Commission is being given quite significantly expanded responsibilities—not greater powers—and there are more charities to regulate, more functions to carry out and more advice to be given. However, there is no expectation that the commission is to be given extra resources to carry out its wider responsibilities. As many hon. Members have already mentioned, there is some doubt about how effectively the Charity Commissioners carry out some of their existing functions, let alone their future functions. That is still an underlying worry, which I should like the Parliamentary Secretary to deal with.

Edward Miliband: Thank you, Mrs. Humble. It is nice to see you back in the Chair this morning.
We have had a useful and interesting debate. Let me start by dealing with amendment No. 8, tabled by the hon. Member for Isle of Wight. The debate has reflected the need for balance to ensure compliance, as my hon. Friend the Member for South Derbyshire said, and to do so in a way that is not heavy-handed, onerous and does not stifle charities’ initiative. The task is to strike the right balance, and the Bill does that.
Let me explain the effects of the BillÂ in the context of the underlying situation. It will improve the regulatory situation in respect of how the commission works. I refer the Committee in particular to the fourth duty listed in proposed new subsection 1D(2), which alludes to the better regulation principles enshrined in the Hampton report. Those are now in the Bill following debate in another place, precisely to ensure that regulatory practice and activity should be proportionate, accountable, consistent, transparent and targeted only at cases where action is needed. That is one aspect of what is happening.
A second point is that the Legislative and Regulatory Reform Bill, which is currently being considered in another place, introduces the concept of properly targeted risk-based regulation. Under part 2 of the Bill a new code of practice will be triggered for organisations that were considered by Hampton. The Charity Commission, as hon. Members may know, was one of the bodies that was considered in the report. The Government intend that the Charity Commission should be one of the bodies subject to the new code of practice.
The new code of practice comes from Philip Hampton’s report of March 2005. The principles of inspection and enforcement that he set out will form the basis of the new code of practice, which, I believe, is either being drafted or has already been drafted in illustrative form. I shall pick out for the Committee a few of the principles that Philip Hampton wants enshrined in the code of practice; regulators and the regulatory system as a whole should use comprehensive risk assessment to concentrate resources on the areas that need them most; all regulations should be written to be easily understood, implemented and enforced, and all interested parties should be consulted at the drafting stage; regulators should provide authoritative, accessible advice easily and cheaply.

Mark Todd: The Minister is making an extremely powerful point. What tools of risk assessment does he think the Charity Commission might use? That is one of the critical areas; we all talk about risk assessment—or perhaps we do not talk about it enough, although it is increasingly common for the Government to do so—but noticeably little thought is given to exactly how to do it.

Edward Miliband: My hon. Friend asks a pertinent question. In a sense the decision is for the commission, and the hon. Member for Cheltenham (Martin Horwood) made the point that one cannot simply make a distinction between small and large charities in relation to where risk lies. However, I suspect, although I do not want to speak for the regulator, that very large charities are at greater risk than smaller ones because of the sums of money that they deal with.
The fourth principle set down by Philip Hampton that I want to highlight is that when new policies are being developed explicit consideration should be given to how they can be enforced using existing systems and data, to minimise the administrative burden. A lot is being done to achieve what the hon. Member for Isle of Wight intends by his amendment, which is something with which the Committee clearly has some sympathy.
As to the issue of trustees, there is, later in the Bill, much that is relevant to the amendment, which trustees will welcome. One such matter is the ability to use the charity’s funds to take out indemnity insurance if necessary, which the Committee will consider. Another is the Charity Commission’s ability to relieve trustees who have acted honestly and reasonably of personal liabilities if something has gone wrong. That will assist trustees.
I am sympathetic to the intention behind the amendment, but I do not think that it will achieve all that much. What is happening elsewhere is important. Having said all that about the need for risk-based, proportionate, well targeted regulation, I think that it is also right that the compliance objective is taken seriously, as hon. Members have highlighted. It should not somehow be diluted. We are talking about two separate stories; we need a compliance objective that is rigorous and properly upheld and, at the same time, across all of the commission’s activities, we need a regulatory system that does not impose unfair and excessively burdensome requirements.
Let me deal with the SORP.

Peter Bone: Does the Minister agree that it would be much better to have this measure in the Bill than to rely on legislation that is in another Bill? If we want to highlight an issue, it should be in the Bill that we are dealing with.

Edward Miliband: I am very sympathetic to the intentions behind the amendment, and I do not want to suggest otherwise. What troubles me slightly about it is that we need to deal with compliance in a place that is separate from the overall approach of the Charity Commission to regulation. Nothing that this Committee does on this Bill must be seen to undermine the need for proper compliance. At the same time, it is right that we need to ensure that we send a message that the regulatory system should not impose burdensome regulation. On that basis, I am afraid that I am not inclined to accept the amendment.
Let me deal with the SORP. I confess that the knowledge shared by the hon. Member for Isle of Wight about the number of pages in the SORP is something of which I was not aware. That is why the Committee helps to enlighten us all. A SORP is a statement of recommended accounting practice; it is not part of the law, although parts of it are in law. It is important to say that only parts of the SORP are in law. The SORP is intended to be helpful; it is, after all, a statement of recommended practice.

Andrew Turner: If we are not careful, this may take us on to future amendments. As I quoted, the SORP actually says of itself:
“compliance with which is considered necessary, in all save exceptional circumstances, to meet the legal requirement”.
If one puts that information in front of trustees, they do not feel that they have much scope for doing something differently. I understand what guidance means, as I am sure the Minister and other hon. Members do, but I do not think that trustees who are presented with that phrase would feel that they had much scope to something a better way.

Edward Miliband: The hon. Gentleman makes an important point.
I was about to say that, as with everything that the hon. Member for Worthing, West has said so far in this Committee, I have sympathy for what he said. I think that I will accept his challenge to sit down, at least, with the commission and talk to them about the SORP and about whether there is a way in which it can be produced in a more comprehensible and shorter form. I suspect that that has probably occurred to the commission before, but I think it is a fair and important challenge. When I do so, I shall also take into account the comment made by the hon. Member for Isle of Wight in a recent intervention that the actual phrasing of the SORP is important. I understand that if the charity’s turnover is less than £100,000, the SORP does not produce significant requirements, even in law. However, I shall take up these issues.
In a sense, we are talking about the administrative practice of the commission. I think that the commission will have heard this debate and I hope that it will take account of it. My hopes that it will take account of it are buttressed by both the legislation that we have before us and what the Legislative and Regulatory Reform Bill will do. That will have an important effect.

Peter Bottomley: I thank the Minister for his kind words. I should have said earlier that, in my dealings with the Charity Commission over the past 30 years or so, I have found it to be almost invariably sympathetic and helpful, even though it clearly has problems with resources and with addressing all those who are responsible for charities. I should also say a word in favour of the SORP in general and I have one illustrative example. As a trustee, I was told, “If you make an unconditional commitment for future years, you’ve got to account for it.” I originally thought that that was a burden, but I now think that it is better to tell potential recipients of grants, “This is subject to us having the money and you continuing to perform.” The SORP has got us to change our practice, and one should not suggest that what it is trying to achieve is wrong, because it is normally trying to achieve something that is right and worth while.

Edward Miliband: Again, the hon. Gentleman speaks wise words, and I shall take them, and his earlier words, into account in my discussions with the commission.
Time is marching on, so let me move on to amendment No. 66, which stands in the name of the hon. Member for Cheltenham. The amendment concerns the commission’s advice on registering or not registering a charity, and the most interesting exchange was that between the hon. Members for Worthing, West and for Cheltenham about mergers, in which my hon. Friend the Member for High Peak also intervened.
We need to be careful that we understand the regulator’s role, which is to uphold the system of charity law, to ensure public confidence in it and to give advice on establishing or not establishing charities. We must be careful, however, that we do not place the commission in the position of persuader in respect of mergers or the setting up or not setting up of charities, because that is not really its job. The commission’s job is to respond to the population’s wishes and demands in respect of establishing charities and to give information and guidance, not to put itself in the position of persuader or demander. I fear, however, that the amendment tabled by the hon. Member for Cheltenham goes slightly in that direction.
Having said that, I do have a piece of good news for the Committee and, I hope, for the hon. Gentleman. The Charity Commission is about to publish a document called “Registering as a Charity”, which is designed to explain precisely what is and is not a charitable activity; which activities people think are charitable, but are not; why the promoter of a charity should consider working with an existing charity, rather than simply setting up a new one; what qualities trustees should have; and the principles that should guide them in taking on their role as a charity. Therefore, the commission will issue guidance and advice on charity law and on setting up charities.
However, we must tread carefully and ensure that we do not move to a situation in which the commission somehow feels able to tell someone who has gone through the process of establishing a charity and who has gone to the commission to register it, “Actually, our advice is that you should not have set up a charity.” By that point, the charity will already have been established, and the person will be moving to registration. I fear that the hon. Gentleman’s amendment moves us too far in that direction.
I am very sympathetic to the hon. Gentleman’s overall intentions, and the commission needs to be able to give people clear advice about the options open to them. However, it should do that in the role of neutral broker, not persuader, and I fear that the amendment takes us into the real of persuasion. I therefore hope that the hon. Gentleman will not press it.
As for amendment No. 75 on public benefit, it is pretty clear from clauses 3 and 4 both that a public benefit test will be applied to all charities—we had great fun discussing that on Tuesday—and that the Charity Commission will issue overall guidance on public benefit. As hon. Members know, illustrative guidance is already available. As I said in Committee on Tuesday, we will later consider different classes of organisation and the relationship to public benefit and the requirements.
On the phrase
“a systematic review of the public benefit”,
I am not sure that it is for us to tell the Charity Commission the nature of a review of public benefit. It is pretty clear what it will do: it will issue guidance and consider different classes of organisation, as well as whether and how they meet the public benefit requirements. I am cautious about appearing to give instruction to the regulator. The public benefit test is established and will, for the first time, apply to all organisations. There will be overall guidance and separate classes will be considered. From briefings that the Charity Commission has given Members and from what it has said in public, it is clear that it will take those responsibilities seriously. We do not necessarily need to move beyond that.

Martin Horwood: I understand the Minister’s reluctance to issue directions to a regulator, especially an independent regulator such as the Charity Commission; that is entirely laudable, and a good instinct. As I said earlier, the purpose behind my probing amendment was to establish what the Minister’s expectations were. Certainly, in Scotland, OSCR will undertake a proactive process to identify charities that might not pass the public benefit test. Is that his expectation, at least, of what will happen in England and Wales?

Edward Miliband: It is a duty of the Charity Commission to ensure that all charities meet the public benefit test, which, for the first time, will apply to all charities. It is absolutely my expectation that if charities do not meet the public benefit test, we will discuss the situation with the Charity Commission; it will take action and do what is necessary, as the regulator. The levelling of the playing field will change the situation, because it will mean that the commission can rigorously pursue the public benefit test for all charities without exception. That is my strong expectation.

Tom Levitt: On that point, does my hon. Friend share my hope that, if a charity is either borderline or outside the public benefit regulations, the first action of the Charity Commission will be to work with it to try to bring it within the regulations and to ensure that it provides a public benefit, rather than to deregister it?

Edward Miliband: That is an important point. In a way, that should be the first, second, third, fourth and fifth action of the commission. It must always be a last resort to take away charitable status, partly for the reasons that hon. Members gave earlier that are to do with the fact—and I confess that I did not know this until I started delving into charity law—that once assets are put into a charitable trust, they cannot transition elsewhere. Those assets are a pledge, in a way, in perpetuity. Therefore, there is a massive interest in bringing charities back into compliance in cases in which the Charity Commission feels that there is not compliance.

Martin Horwood: I entirely agree with the hon. Member for High Peak that—as has been pointed out by, among others, the Independent Schools Council in advice to its members—removal of charitable status is absolutely a last resort, and that the first step should be advice, consultation and working with charities to enable them to meet the public benefit test.
The Minister said that the process will kick off when a charity does not meet the public benefit test, but the question is how we know that it does not meet that test. Is he expecting the Charity Commission simply to rely on cases being brought to its attention, or is he expecting it to follow a process similar to that being followed by OSCR, by which the commission itself will review the charities that are likely to have a problem with the new public benefit test?

Edward Miliband: I feel somewhat as if we are dancing on the head of a pin; there used to be an automatic presumption of public benefit, which applied to religious charities and charities that dealt with poverty or with education. That presumption is being removed, so the Charity Commission will need to examine charities working in those areas to see that the public benefit test is complied with. That is widely accepted, not least by Jonathan Shephard of the Independent Schools Council, who featured heavily in the debate on Tuesday. I hope, on that basis, that the hon. Member for Isle of Wight will accept my reassurances and withdraw the amendment.

Andrew Turner: I understand and welcome the assurances that the Minister is giving, but I am disappointed in that he does not feel that some strengthening is necessary. The problem is that we have heard so much of this deregulation stuff before—deregulation, better regulation and so on. My now noble Friend Lord Heseltine swung through the jungle, as I recall, in 1990, or even earlier, deregulating right left and centre—

Edward Miliband: Something else happened in 1990.

Andrew Turner: The Minister is right. My noble Friend was engaged in much worse practices in 1990. Anyway, at some time, he was busy deregulating; there were a huge number of words about deregulation, and the tiniest conceivable achievement. As I recall, the present Government appointed Lord Haskin to deregulate—

Edward Miliband: Lord Haskins.

Andrew Turner: I apologise; I did not know there was more than one of them. Apart from the fact that less noise was made than by my noble Friend, there was not a huge amount of visible benefit. Now we hear that another document has been produced by someone equally eminent—or perhaps more so, since fewer of us have heard of him. We wonder when something will take effect. The better regulation principles have existed for a long time. The Better Regulation Task Force was set up, I think, under the first Government of the present Prime Minister. I am concerned that what is intended will never happen.
I want to give one further example, which concerns a trust called the Martha Trust Hereford. On 23 July 2003 it was notified that it had been selected at random for a visit by the Charity Commission—a visit, not an inspection. The purpose was
“to reassure trustees that they are following best practice and meeting legal requirements”.
A dozen documents were requested. On 31 December 2003, five months later, a date for the visit was set. All the documents were requested again. So far, I am told, that involved about five hours’ work for the trustees. On 21 May 2004, the visit took place, all afternoon. Two trustees, two directors and, presumably, representatives of the Charity Commission went through every section of a tick list. The conclusion was that the trust should have a strategic plan, a conflict of interests policy, formal trustee recruitment and an induction policy—and so it went on. No consideration was given to what the charity was doing for its beneficiaries.
That is the problem with regulation. The people doing the regulating have no interest in the outcome. They are obsessed with process. That is what drives trustees and others, and me, mad—as you can tell from my expression. The hon. Member for Bishop Auckland quoted toy libraries and I am sure what she said is true. She referred to the friendly meetings that Ministers have from time to time with the Charity Commission. I am sure that they get all sorts of wonderful assurances. 
I am pleased that my hon. Friend the Member for Worthing West has also had good relations with the Charity Commission. When one is a trustee of a small organisation, the only time that one ever hears from the Charity Commission is when it is trying to get one to do something. For a trustee or chief executive of a large organisation, or certainly a Minister, I suspect that the treatment is slightly different. That is borne out by what the Parliamentary Secretary said about the greater risk to funds in large charities, although I accept that that was a hypothesis rather than an assertion. Yet, and I am doing my arithmetic quickly, 44 per cent. of inquiries by the Charity Commission in a year—I am sorry I do not know which—were devoted to charities that accounted for 5.4 per cent. of the gross annual income of charities. Some 44 per cent. of the inquiries went to 5.4 per cent. of the funds.

Edward Miliband: With the greatest respect, I agree with everything that the hon. Gentleman has said in his reply, but I do not think his amendment would be nearly as effective as a new system of risk-based regulation. In a sense, he is precisely pointing out the need for proper assessment in advance of where the risk lies and therefore where the visits should be made and who should be targeted for inspection.

Andrew Turner: That was my point in quoting Martha Trust Hereford. The commission has had the documents for five months so one would think that it could have read them and worked out whether it was necessary to ask for the document again, have the visit, ask for conflict of interest policies and so on and so forth.

James Duddridge: Does my hon. Friend agree that one measure for the amount of regulation is the number of people involved in that regulation? The Association for Charities, in a good document, “Power without Accountability”, quotes the figure for the Charity Commission as 550 people, which seems excessive. Hon. Members will also have received information about the Charity Law Association, which has been helpful. It talks of over 900 members, most of whom are lawyers specialising in charity law. To me those two numbers do not seem to stack up with what we are hearing about light regulation.

Andrew Turner: I agree absolutely. The Charity Law Association has been immensely helpful at all stages of the Bill and its genesis, but the fact that regulation can produce productive employment for 900 lawyers suggests in itself that there is far too much to do. I am concerned that the Bill extends the scope and the power to intervene.
I accept the Minister’s assertion that he does not want to dilute the compliance objective and that my amendment may be in the wrong place. I do not accept that there is no need for the amendment, because I believe that some further action is required in the Bill to ensure that the good intentions to which he referred and that I accept are genuine are carried through into action. You will have noticed, Mrs. Humble, that I have tabled many amendments broadly on the lines of requiring a lighter and more proportionate touch and fairer and more reasonable activity by the Charity Commission. I hope that between now and Report the Minister will look at all the amendments that cover the area and see whether it is possible to strengthen the requirement for more proportionate action in the Bill and to impose a lighter touch and a lesser burden on trustees, in particular, and trustees in small charities most particularly.
I would not support one of the amendments tabled by the hon. Member for Cheltenham, which deals with the systematic review of the public benefit test, because it is a further imposition on charities. On the other hand, I do not see how the Charity Commission can get away without undertaking a systematic review and I am concerned about the resources for which the Charity Commission will bid in order to carry out that review and the burden that it will place on charities. It may be to the benefit of all the other charities—they will be able to take their eye off the ball, stop worrying about small charities and stop undertaking the type of sustained work that they appear to be doing.
I would like to reflect on what the Minister has said today. I hope that he will reflect on what I have said about other amendments and the prospect of strengthening the balance—there has to be a balance—in the Bill on Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Martin Horwood: I beg to move amendment No. 67, in clause 7, page 7, line 11, at end insert—
‘1A. So far as is reasonably practicable the Commission must, in performing its functions, act in a way which maximises the benefit to the users and beneficiaries of charities’ services and activities.’.

Joan Humble: With this it will be convenient to discuss the following amendments: No. 9, in clause 7, page 7, line 25, at end insert ‘and act in a fair and reasonable manner,’.
No. 10, in clause 7, page 7, line 31, at end insert—
‘(7) So far as is reasonably practicable the Commission must, in performing its functions, distinguish between—
(a) its regulatory role,
(b) its advisory role, and
(c) its investigatory and remedial role.’.
No. 76, in clause 7, page 7, line 31, at end insert—
‘7. The Commission must, in appropriate cases, have regard to the desirability of providing extra support, advice, guidance and encouragement to new and developing charities from a diverse range of communities.’.
No. 103, in clause 7, page 7, line 31, at end insert—
‘7. In performing its regulatory functions the Commission must act fairly and reasonably, and with regard to the interests, of charity beneficiaries.’.

Martin Horwood: Amendments Nos. 67 and 103 are similar. Amendment No. 103 would insert into the commission’s responsibilities
“In performing its regulatory functions”
the responsibility to
“act fairly and reasonably, and with regard to the interests, of charity beneficiaries.”.
The hon. Member for Isle of Wight and the hon. Member for Rochford and Southend, East (James Duddridge), have already mentioned the concern of some within the sector that the Charity Commission does not always act fairly and reasonably in all circumstances. That is a tall order for any public organisation and I am sure that I, like the hon. Member for Worthing, West, would praise the way in which the charity commissioners have carried out many of their tasks and responsibilities in the past, and praise some of the individuals who have carried out those responsibilities. Nevertheless, there are concerns.
The hon. Member for Rochford and Southend, East mentioned a document called “Power without Accountability” published by the Association for Charities. If the Minister has not read it, I commend it to him. It presents a number of cases, all of which could fairly be described as quite difficult and in which both sides to the case can be seen. However, even if part of the trend that the association identifies is true, it should give the Minister some cause for concern. The association says that in many cases, the Charity Commission systematically sided with larger or parent charities against smaller ones or against branches of charities.

James Duddridge: Would it be helpful if the Minister offered to lay before the House some comments on that report, which deals with very specific cases? They look like the type of thing that comes up in individual constituency cases. I see the Minister frown, and I do not want to overburden him, but it would be useful to see which trends he accepts and which accounts he considers to be more one-sided.

Martin Horwood: I am grateful for that intervention. It is for the Minister to decide in what form he wants to reply to that report. Perhaps Committee stage or Report might be an appropriate time to address some of the concerns that it raised.
Some of those concerns are quite serious, relating to matters such as the appointment of receivers and managers who have no experience of running charities, thereby displacing the existing trustees or managers of charities; and the fees of receivers and managers being allowed to overrun those estimated in the original tenders by 100 per cent., 200 per cent., 300 per cent. or more—sometimes by hundreds of thousands of pounds. A trend was identified in which costs are imposed on smaller charities without any possibility of challenging the process by which those costs are incurred. Those are genuine and serious concerns. As I said, we should be concerned even if only one or two of them are correct or identify a real problem.
The duty to act reasonably and fairly was discussed in another place, at which time the example of the Little Gidding Trust was raised. The High Court judge, in ruling on whether the commissioners had acted appropriately according to the law, failed to consider whether they had acted fairly and reasonably in the interests of shortening the hearing at the High Court. That is the practical difference that the amendments would make: if they were included, there would not only be a general moral obligation on the courts to decide whether the commission was acting reasonably and fairly, they would have to consider that duty in cases like the one relating to the Little Gidding Trust.
The amendments will make a practical difference, contrary to what Lord Bassam claimed in the debate in another place, and they have a great deal to recommend them. After all, who could possibly oppose the insertion of acting reasonably and fairly into a Bill?
Amendment No. 76 is different and would include other responsibilities for the Charity Commission, including a need to have,
“in appropriate cases, regard to the desirability of providing extra support, advice, guidance and encouragement to new and developing charities from a diverse range of communities”.
That reflects the changing face of the charity sector, which we discussed on Tuesday, and how it must be more inclusive of organisations and communities that may not necessarily follow the established model of charitable organisations, particularly membership organisations.
I have experience of organisations such as the MS Society and others, which have tried hard to make themselves more welcoming and inclusive, for example, in relation to members of ethnic minorities. However, in some cases such organisations have struggled to do that when established branch structures have a particular ethos and, inevitably, an esprit de corps that might be off-putting to newcomers or those who do not seem to fit the traditional ethos. There is a challenge to organisations, including many larger charities with established memberships and established ways of doing things, to reach out to minority ethnic communities and others from different social backgrounds. Those organisations must challenge the twinset and pearls image of some local charities, which can be off-putting to some people and could be a bar to them gaining the full benefit of involvement in membership organisations.
The MS Society is successfully tackling that problem and is doing great work on inclusion and ensuring that its membership and local branches are representative. However, it would be wise and sensible to give the Charity Commission a responsibility to encourage new and developing charities that provide an alternative route into involvement in the charity sector for people from other backgrounds. I am keen to see the amendments progress.

Andrew Turner: I shall speak first to amendments Nos. 9 and 10. The proposal to oblige the Charity Commission to act fairly and reasonably links to the lead amendment in the previous group. The Government have resisted such a provision with, it seems to me, a disproportionate amount of energy. It seems to be a reasonable objective to place on an organisation such as the Charity Commission.
The hon. Gentleman referred to the Little Gidding Trust case, which I understand was exactly as he stated. Lord Bassam said in the House of Lords that the commission
“would not change its behaviour”.—[Official Report, House of Lords, 12 October 2005; Vol. 674, c. 335.]

It being twenty-five minutes past Ten o’clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at One o’clock.